FOR OFFICIAL USE ONLY Report No: PAD3253 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED GLOBAL ENVIRONMENT FACILITY (GEF) GRANT IN THE AMOUNT OF US$3.77 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A CLIMATE SMART MANAGEMENT OF GRASSLAND ECOSYSTEMS November 18, 2019 Environment & Natural Resources Global Practice East Asia And Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The World Bank Climate Smart Management of Grassland Ecosystems (P166853) CURRENCY EQUIVALENTS Exchange Rate Effective May 13, 2019}) Currency Unit = Chinese Yuan (CNY) CNY 6.8162 = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AWRSTB Agriculture, Water Resources, Science and Technology Bureau AV Administrative Village CPMO County Project Management Office CQS Selection Based on Consultants’ Qualification DA Designated Account DS Direct Selection EMDP Ethnic Minority Development Plan EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan ENPV Economic Net Present Value FAO Food and Agriculture Organization FIRR Financial Internal Rate of Return FGB Forest and Grassland Bureau FM Financial Management FNPV Financial Net Present Value GA Grant Agreement GEF Global Environment Facility GHG Greenhouse Gas GRFA Genetic Resources for Food and Agriculture GRM Grievance Redress Mechanisms GRS Grievance Redress Service IAS Invasive and Alien Species IE Impact Evaluation IPM Integrated Pest Management M&E Monitoring and Evaluation MOA Ministry of Agriculture MARA Ministry of Agriculture and Rural Affairs MOF Ministry of Finance MONR Ministry of Natural Resources MOST Ministry of Science and Technology NDC Nationally Determined Contribution The World Bank Climate Smart Management of Grassland Ecosystems (P166853) NDRC National Development and Reform Commission NPMO National Project Management Office NPSC National Project Steering Committee NV Natural Villages PES Payments for Ecosystem Services PF Process Framework PIM Project Implementation Manual PMP Pest Management Plan PP Procurement Plan PPMO Provincial Project Management Office PPSC Provincial Project Steering Committee PPSD Project Procurement Strategy for Development PRC People’s Republic of China QCBS Quality- and Cost-Based Selection QDARA Qinghai Department of Agriculture and Rural Development QDRC Qinghai Development and Reform Commission QFGD Qinghai Forest and Grassland Department QPLG Qilian Project Leading Group REEA Rural Energy and Environment Agency, MARA SA Social Assessment SFGB State Forest and Grassland Bureau UNDP United Nations Development Programme WA Withdrawal Application Regional Vice President: Victoria Kwakwa Country Director: Martin Raiser Senior Global Practice Director: Karin Erika Kemper Practice Manager: Ann Jeannette Glauber Task Team Leader(s): Jiang Ru, Wendao Cao The World Bank Climate Smart Management of Grassland Ecosystems (P166853) TABLE OF CONTENTS DATASHEET ........................................................................................................................... 1 I. STRATEGIC CONTEXT ...................................................................................................... 7 A. Country Context................................................................................................................................ 7 B. Sectoral and Institutional Context .................................................................................................... 7 C. Relevance to Higher Level Objectives............................................................................................. 11 II. PROJECT DESCRIPTION.................................................................................................. 11 A. Project Development Objective ..................................................................................................... 11 B. Project Components ....................................................................................................................... 12 C. Project Beneficiaries ....................................................................................................................... 14 D. Results Chain .................................................................................................................................. 14 E. Rationale for Bank Involvement and Role of Partners ................................................................... 15 F. Lessons Learned and Reflected in the Project Design .................................................................... 15 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 16 A. Institutional and Implementation Arrangements .......................................................................... 16 B. Results Monitoring and Evaluation Arrangements......................................................................... 17 C. Sustainability................................................................................................................................... 17 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 18 A. Technical, Economic and Financial Analysis ................................................................................... 18 B. Fiduciary.......................................................................................................................................... 18 C. Safeguards ...................................................................................................................................... 23 V. KEY RISKS ..................................................................................................................... 26 I. RESULTS FRAMEWORK AND MONITORING ................................................................... 28 ANNEX 1: Implementation Arrangements and Support Plan .......................................... 34 ANNEX 2: GEF Technical Annex ..................................................................................... 36 ANNEX 3: Economic and Financial Analysis .................................................................... 41 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name China Climate Smart Management of Grassland Ecosystems Project ID Financing Instrument Environmental Assessment Category Investment Project P166853 B-Partial Assessment Financing GEF Focal Area Climate change Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 18-Nov-2019 31-Dec-2024 Bank/IFC Collaboration No Proposed Development Objective(s) To pilot climate smart grassland management practices in Qilian County of Qinghai Province. Page 1 of 40 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Components Component Name Cost (US$, millions) Grassland Management Pilots 2.72 Policy and Strategy Development 0.45 Knowledge Management 0.42 Project Management 0.18 Organizations Borrower: People's Republic of China Implementing Agency: Ministry of Agriculture and Rural Affairs PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 3.77 Total Financing 3.77 of which IBRD/IDA 0.00 Financing Gap 0.00 DETAILS -NewFinEnh1 Non-World Bank Group Financing Trust Funds 3.77 Global Environment Facility (GEF) 3.77 Expected Disbursements (in US$, Millions) WB Fiscal Year 2020 2021 2022 2023 2024 2025 Annual 0.20 0.40 0.60 0.60 0.60 1.37 Cumulative 0.20 0.60 1.20 1.80 2.40 3.77 Page 2 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Environment, Natural Resources & the Blue Agriculture and Food, Urban, Resilience and Land Economy SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Low 2. Macroeconomic ⚫ Low 3. Sector Strategies and Policies ⚫ Low 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Moderate 6. Fiduciary ⚫ Moderate 7. Environment and Social ⚫ Low 8. Stakeholders ⚫ Low 9. Other 10. Overall ⚫ Moderate COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Page 3 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Sections and Description Institutional Arrangements (Section I.A of Schedule 2 to the Grant Agreement) The Recipient, through MARA, shall: (a) establish no later than three (3) months after the Effective Date, and thereafter maintain the National Project Steering Committee; (b) (i) maintain the National Project Management Office; and (ii) cause the Rural Energy and Environment Agency to support the NPMO in the financial management and disbursement of the Grant; and (c) cause Qinghai to: (i) maintain: (A) a provincial Project steering committee; and (B) a provincial Project management office; and (ii) cause Qilian to maintain: (A) a county leading group; and (B) a county Project management office. Sections and Description Implementation Agreements (Section I.B of Schedule 2 to the Grant Agreement) The Recipient, through MARA, shall, no later than three (3) months after the Effective Date: (a) enter into an implementation agreement with Qinghai; and (b) cause Qinghai to enter into an implementation agreement with Qilian; both on terms and conditions acceptable to the Bank. Sections and Description Annual Work Plans (Section I.C.1 of Schedule 2 to the Grant Agreement) Page 4 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) The Recipient, through MARA, shall cause the Project Participants to carry out activities under the Project during each fiscal year in accordance with Annual Work Plans agreed with the Bank. Sections and Description Project Implementation Manual (Section I.C.2 of Schedule 2 to the Grant Agreement) Throughout the implementation of the Project, the Recipient, through MARA, shall cause the Project Participants to, carry out the Project in accordance with the arrangements and procedures set out in the Project Implementation Manual in a manner acceptable to the Bank. Sections and Description Safeguards (Section I.D of Schedule 2 to the Grant Agreement) The Recipient, through MARA, shall cause the Project Participants to: (a) implement the Safeguards Instruments in a manner and substance acceptable to the Bank; (b) ensure that all studies and technical assistance to be supported under the Project are carried out under terms of reference acceptable to the Bank, and that such terms of reference are consistent with, and pay due attention to, the Bank’s Safeguards Policies; (c) not amend, suspend, or waive the Safeguards Instruments, or any provision thereof, without the prior written concurrence of the Bank; (d) maintain policies and procedures adequate to enable them to monitor and evaluate, in accordance with guidelines acceptable to the Bank, the implementation of the Safeguards Instruments and (e) take all measures necessary on their part to regularly collect, compile, and submit to the Bank, as part of the Project Reports, information on the status of compliance with the Safeguards Instruments. Sections and Description Sub-grants (Section I.E of Schedule 2 to the Grant Agreement) For the purposes of carrying out Part 1 of the Project, the Recipient, through MARA, shall cause Qinghai to cause Qilian to: (a) provide Sub-grants to Eligible Beneficiaries, in accordance with eligibility criteria and procedures acceptable to the Bank and set out in the Project Implementation Manual; and (b) provide each Sub-grant under a Sub-Grant Agreement with the respective Eligible Beneficiary, on terms and conditions approved by the Bank. Sections and Description Mid-term Review (Section II.B of Schedule 2 to the Grant Agreement) The Recipient, through MARA, shall cause the Project Participants to, prepare, under terms of reference acceptable to the Bank, and furnish to the Bank no later than July 31, 2022, a mid-term review report for the Project, summarizing the result of the monitoring and evaluation activities carried out from the inception of the Project, and setting out the measures recommended to ensure the efficient completion of the Project and the achievement of the objectives thereof during the period following such date. Conditions Page 5 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Page 6 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) I. STRATEGIC CONTEXT A. Country Context 1. China’s impressive economic and social development over the last few decades have come at the price of serious environmental degradation and resource depletion. Recognizing mounting evidence of these negative development impacts, China has gradually shifted its development policy toward a more efficient, equitable, and environmentally sustainable growth trajectory. In this regard, China has launched various national campaigns and participated actively in international cooperation to combat climate change; conserve natural resources; and control environmental pollution at the local, national, and global levels. B. Sectoral and Institutional Context 2. With one-fourth of the earth’s terrestrial areas, grasslands contain one-third of carbon sequestrated by the global terrestrial ecosystems, supply more than 50 percent of the world’s dairy products, and support the livelihood of 600 million people. In China, grasslands are spread over 400 million ha and account for about 40 percent of the country’s terrestrial area. These grasslands have provided important ecosystem services—locally, nationally, and globally—including supporting the livelihood of millions of herders. As part of the Government’s poverty reduction strategies of settling nomadic pastoralists for better living conditions and better access to social services, China has promoted grassland management contracts since the late 1990s and has been gradually devolving collective grassland management rights into private ones held by individual herder households. According to the 13th Five-Year Plan for Grassland Conservation, Construction, and Utilization, in 2015, about 290 million ha, that is, over 70 percent of China’s grasslands are under management contracts held by individual herders. 3. Geographically, about 78 percent of China's grasslands are located in the northern temperate zone, often with fragile environmental conditions. Mismanagement (such as overgrazing and grassland management contracts) have degraded China’s grasslands; caused low vegetation coverage, soil erosion, and the release of soil carbon; impaired ecological and productive functions of grasslands; and consequently reduced the adaptive capacity of grasslands under a changing climate.1 For the grassland management contract system, studies have indicated that it has contributed to grassland degradation by limiting herders’ ability to use traditional knowledge to effectively manage grasslands and to cope with the changing climate.2 In general, grassland degradation has also led to widespread infestation of pests, unpalatable grasses, and even invasive alien species (IAS). Further exacerbating the problem, many endemic livestock species have been replaced by productive but often non-native ones. 1 Numbers quoted often are that China’s grasslands are degrading at a rate of 1.33 million ha annually and 90 percent of China’ s grasslands are at various levels of degradation. However, robust studies will be needed to reconcile these numbers with official results of China’s various grassland conservation programs. 2 For example, see Conte, T. 2015. “The Effects of China’s Grassland Contract Policy on Mongolian Herders’ Attitudes Towards Grassland Management in Northeastern Inner Mongolia.� Journal of Political Ecology 22: 79–97. Also, see Cao et. al, 2013. “The Role of Overgrazing, Climate Change and Policy as Drivers of Degradation of China’s Grasslands.� Nomadic Peoples 17 (2): 82–101. Page 7 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) 4. Since 2003, China has implemented various payments for ecosystem services (PES) programs to reverse the trend of rapid degradation and protect invaluable ecosystem services of grassland ecosystems .3 According to the latest policy—Guidance on the Implementation of the New Round of Subsidy and Award Policies for Grassland Ecological Conservation (2016–2020), the Central Government provides an annual subsidy of CNY 112.5 (about US$18) per ha for grazing ban at heavily degraded grasslands during a cycle of 5 years, an annual reward of CNY 37.5 (about US$5.6) per ha for grasslands included under the grass-livestock balance scheme, and a performance award to provinces with good implementation results. 4 For the grazing ban and grass-livestock balance schemes, local governments are instructed to develop local implementation plans to determine actual levels of subsidies and rewards. 5. With a top-down design, these PES programs have an intention of using financial payments to incentivize herders to manage their grasslands in a sustainable manner. However, studies show that herders’ income expectations, relatively low payments, rigid implementation arrangements for grazing bans (fixed for 5 years), and uncertainties associated with short-term horizons of these programs, currently renewed every five years, might have limited actual achievements of the conservation objectives of these programs.5 In addition, some conservation measures—such as fencing and grazing ban—may have unintended and negative impacts on grassland restoration, if not managed properly.6 It is noted that the level and formats of such payments and associated implementation modalities are decided without fully considering herders’ actual grassland management practices and their livelihood demands. In practice, the remoteness of vast grassland areas has also limited the Government’s ability to perform effective monitoring and evaluation (M&E) tasks with traditional techniques and approaches. Interviews with herders show that they are generally aware of conservation intentions of the Government but could not tell the exact requirements of such programs and viewed program payments as a part of livelihood supports from the Government. 6. Recognizing the tremendous challenges faced by China in its grassland conservation efforts, the former Ministry of Agriculture (MOA), reorganized as the Ministry of Agriculture and Rural Affairs (MARA) in March 2018, sought the support of the Global Environment Facility (GEF) through the World Bank. This request is processed as a child project of a proposed People’s Republic of China (PRC)-GEF Partnership Program for Sustainable Agricultural Development, approved by the GEF in its October 2017 Council Meeting. 7 Led by the United Nations Development Programme (UNDP) with participation of the World Bank and Food and Agriculture Organization (FAO), the Partnership Program will support China to tackle selected priorities of the National Plan for Sustainable Development of Agriculture (2015–2030): (a) conservation and sustainable use of genetic resources for food and agriculture (GRFA); (b) prevention, control, and management of IAS; (c) sustainable grassland management; and (d) knowledge partnership on climate change and agrobiodiversity conservation. 3 The PES programs include the Grazing Ban and Return to Grass Program from 2003–2010 and Subsidy Program for Grassland Ecological Conservation from 2011–2015. According to the 13th Five-Year Plan for Grassland Conservation, Construction, and Utilization, by 2015, China has implemented the grazing ban, pasture fallowing, and rotational grazing for a cumulative area of about 160 million ha, and the grass-livestock balance scheme over 170 million ha. 4 Issued by the MOA and the Ministry of Finance (MOF) on March 1, 2016. 5 See Liu, M. et al. 2018. “The Impact of Ecological Construction Programs on Grassland Conservation in Inner Mongolia, China.� Land Degradation Development 29: 326–336. See also, Na, R. 2013. “Herders Perspective of Grassland Ecological Protection Subsidy Incentives Effects Analysis – the Xilingol League Area in Inner Mongolia as an Example.� Thesis of University of Inner Mongolia. 6 See Zhang, W. et al. 2015. Effect of a Grazing Ban on Restoring the Degraded Alpine Meadows of Northern Tibet, China . The Rangeland J. 37(1): 89-95. See also, Qiu, Jane, 2016. “Trouble in Tibet: Rapid changes in Tibetan grasslands are threatening Asia’s Main Water Supply and the Livelihood of Nomads.� Nature 529: 141–145. 7 Note that the exact GEF grant amount allocated to this project is US$3,769,083. The Cover page and Datasheet Section of this document has used the rounded number of US$3.77 million due to system limitations. Page 8 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Preparation of this child project has been closely coordinated with other child projects of the Partnership Program by incorporating agrobiodiversity conservation, GRFA, and IAS issues into grassland management practices to be promoted by the project. 7. Through internal consultations with national and local stakeholders, MARA selected Qilian County of Qinghai Province to carry out grassland management pilots under this project.8 Located on the south side of the Qilian Mountain and as an integral part of the Qinghai-Tibet Plateau, Qilian has an average elevation of about 3,170 m; a population of 50,000 (of which, about 80 percent are of 14 ethnic minorities); an average annual precipitation of 415 mm; and over 1.17 million ha of natural alpine meadow/steppe grasslands (over 80 percent of its land areas).9 Key features of degraded grasslands in Qilian include decreases in grass heights and coverage, lower biodiversity indices, increases in unpalatable grasses, and reduction in grass productivity (at about 50–70 percent degradation when compared to the 1980s). 8. In Qilian, the proposed pilot activities will be carried out in one of its seven townships: Mole Township. As a pure pasture town, Mole has over 22 percent of the county's productive grasslands (about 250,000 ha) and over 28 percent of the county's livestock population (94,055 yaks, 214,705 sheep, and 616 horses). Mole has also a breeding center and 30 established core breeding herds of the endemic white-Tibetan sheep, an important GRFA for the Qinghai-Tibetan Plateau. Herders in Mole have followed the same practices as herders in other parts of the Qinghai-Tibetan Plateau Region to manage their animals, that is, having animals grazing winter/spring pastures at lower grounds and summer/fall pastures at higher grounds. All grassland areas are contracted to herder households. Normally, herders have fenced their winter/spring pastures but used their assigned summer/fall pastures without fences. 9. In 2018, Mole has a population of 7,182, of which about 49 percent, 38 percent, 8 percent, 3 percent, and 2 percent are Mongolian, Tibetan, Hui, Han, and Tu ethnicities, respectively. It has six administrative villages (AVs) and a total of 27 natural villages (NVs) under these AVs. Within an NV, herder households form informal alliances, which are self-help in nature and formed by herders living in close vicinity. Members of informal alliances often support each other on various aspects of their grassland management and livestock production activities while production decisions are still made at the household level. In total, Mole has 116 herding alliances and 1,630 herding households. On average, the annual per capita income in Mole is about US$3,300, including various subsidies received from the Government. 10. Under the 2016–2020 grassland conservation PES schemes, Qilian has included about one-third of its alpine grasslands under grazing ban and the rest under the grass-livestock balance scheme. Herders obtain an annual subsidy of about CNY 150 per ha (about US$22) for surrendering their contract grassland areas under the grazing ban and about CNY 37.5 per ha (about US$5.6) for participating in the grass-livestock balance scheme. At the county level, Qilian has an allocation of about US$12.5 million annually to support the implementation of both schemes. In Mole, about 100,000 ha are under the grazing ban and about 150,000 ha are under the grass-livestock balance scheme. These translate to a total annual payment of US$3 million, that is, about US$2.2 million for the 8 With one of China’s largest grassland areas, Qinghai was selected due to the ecological significance of Qinghai-Tibetan Plateau for China and the region and the high degree of overstocking and degradation of its grassland areas. Within Qinghai, Qilian is selected due to representativeness of its grasslands for the Qinghai-Tibet Plateau region, its relative easiness to access, and its county government’s proactiveness in grassland conservation. 9 Alpine steppe and meadow are two major types of grasslands of China. Together, these two types account for about 35 percent of China’s temperate grassland areas. The high elevation and extreme weather conditions of these grasslands create additional ch allenges for grassland conservation and restoration. Page 9 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) first scheme and about US$0.8 million for the second scheme.10 All payments are directly transferred from the county’s Finance Bureau to bank accounts of eligible herder households. The grazing ban is strictly implemented by the township government. The grass-livestock balance scheme is implemented by herders under agreements with their respective AVs. Project preparation noted that there had been limited monitoring and supervision of actual stocking rates and herding practices on the ground. This may be in part due to remoteness and large areas of grasslands. Winter accessibility is also a reported challenge. 11. Project preparation estimates that in 2019 Mole‘s grasslands are still heavily overstocked. 11 It is reported that overstocking/overgrazing is the main reason of grassland degradation in Qilian and Mole. On one hand, the grassland contract management system has led to fragmentation and decreases in the size of assigned grassland areas at the household level. On the other hand, herders reported that subsidies under both schemes were insufficient to help them reduce herd sizes without compromising their herding incomes. Herders admitted openly visible grassland degradation over the years and their challenges of using available grassland areas to maintain their desired levels of livestock production. Insufficient grass production has led to the use of commercial fodder to supplement the needs of livestock production in Mole and Qilian. In this regard, local governments in recent years have also promoted grass production in agricultural areas of Qilian to increase local fodder supply, to restore heavily degraded grassland areas, to establish livestock production cooperatives to concentrate production, improve efficiency and enable a shift from pure grazing to partial pen-based fattening practices to shorten production cycles. Moreover, local governments have been implementing regular pest management interventions in grasslands of Qilian with a focus on plateau zokor (Eospalax fontanierii), pika (Ochotona curzoniae), and grassland caterpillar (Gynaephora qinghaiensis). For livestock production, the Qilian Government has been promoting the certification of its livestock products—yak and sheep—as provincial and national geographically labelled products and the value chain development of such products. 12. In terms of climate change, Qilian has observed an increased temperature and changed precipitation patterns (increased but concentrated in summer).12 Qilian Mountain has seen a rising snow line, for example, over 4 m between 2000 and 2012 in central parts of the mountain. Extreme weather events such as spring droughts, summer floods, and winter snowstorms are on the rise. All these negatively affect grass and livestock production and contribute to grassland degradation in the project areas. Herders reported that snowstorms in both 2015 and 2016 had affected their livestock production significantly. The numbers and health conditions of their animals were recovered only in 2018. 13. Hardships and limited incomes associated with herding practices have also affected the age structure, education levels, and gender participation of herding activities in both counties. Young generations have showed limited interests in grassland production. In Qilian, herders over 50 years with limited education are common while female herders can account as high as 45 percent in some villages. These, together with the remoteness of vast grassland areas, has also limited effective dissemination and adoption of sustainable grassland management practices and livestock production technologies in the project areas. 14. Under this GEF project, MARA intends to pilot an evidence-based PES scheme and climate-smart grassland management practices to explore effective ways to link PES incentives with improved grassland 10 Such annual payments for the entire Qilian County are over US$12 million. 11 Data from the Feasibility Study Report of this project. Calculated based on the theoretical carrying capacity of local grasslands 0.931 sheep units per ha and estimated commercial fodder consumption in the project area. 12 For example, see Zhao, et. al. 2015. “Relationships between Climate Change and the Snowline in Central Parts of Qilian Mountain (2000–2012).� Mountain Research 33 (6): 683-9. Page 10 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) management practices. Selected climate-smart grassland management practices are expected to (a) help beneficiary herders to improve their herding incomes by improving grassland productivity as well as the efficiency of their livestock production, (b) improve capacity of herders and resilience of grassland ecosystems to better adapt to a changing climate, and (c) restore soil carbon stock and reduce releases of greenhouse gases (GHGs) from grassland management practices. C. Relevance to Higher Level Objectives 15. This project supports one strategic theme of the World Bank’s Country Partnership Strategy (FY13–16, Report No: 67566-CN): supporting greener growth by piloting sustainable natural resource management approaches (Outcome 1.5). Its efforts to identify effective ways to improve climate resilience of grassland ecosystems and to promote sustainable management and efficient utilization of natural resources are also consistent with Key Priorities for Green Growth for Sustainability reported in China: Systematic Country Diagnostics (2017, Report No. 113092-CN). 16. This proposed project will contribute to the achievement of Climate Change Objective 2 of the GEF 6— Programming Strategies – Demonstrate Systematic Impacts of Mitigation Options – by promoting effective conservation and enhancement of carbon stocks in grasslands and supporting climate-smart grassland management practices that will also include sustainable use of GRFA and prevention and control of IAS. In doing so, this project will also support the Partnership Program to contribute indirectly to relevant biodiversity objectives of the GEF 6 - Programming Strategies on IAS and GRFA. 17. Under the PRC-GEF Partnership Program, this project supports one of the key priorities of the National Plan for Sustainable Development of Agriculture (2015–2030): conservation and sustainable use of grassland ecosystems. By piloting an evidence-based PES scheme, this project will generate critical policy recommendations that may help the design and implementation future grassland conservation schemes to better connect PES payments with intended conservation results. In addition, by focusing on piloting of climate-smart grassland management practices, this project is fully aligned with China’s first Nationally Determined Contribution: Enhanced Actions on Climate Change (NDC), which calls for grassland conservation to increase soil carbon storage.13 II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 18. The project’s PDO is to pilot climate smart grassland management practices in Qilian County of Qinghai Province. 13 Submitted to the United Nations Framework Convention on Climate Change on June 30, 2015. Page 11 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) PDO-Level Indicators 19. Three PDO-level indicators for this project are (a) natural grassland productivity, (b) grassland carbon storage, and (c) herding incomes. Detailed definitions and monitoring arrangements of these indicators are documented in Section I of this document. B. Project Components 20. The project will support four components: (a) Grassland Management Pilots, (b) Policy and Strategy Development, (c) Knowledge Management, and (d) Project Management. 21. Component 1: Grassland Management Pilots (GEF Financing: US$2,719,083). This component will first support selected herders in Mole/Qilian to adopt a suite of climate-smart grassland management practices. Interventions to restore productivity of natural grasslands include (a) no-till grass seeding/fertilization for 530 ha of degraded natural grasslands to restore grassland productivity, (b) no-grazing in spring for about 50 days on 3,200 ha of winter/spring pasture to allow initial grass growth, and (c) enhancement of cultivated grasslands of 167 ha.14 In addition to the project support, the Government will continue implementing its ongoing grassland conservation programs in different parts of the project town, which include (a) grazing bans, (b) grass-livestock balance, (c) repair of existing fences and livestock pens, (d) control of rodent and insect pests, (e) value chain development, and (f) improvement in nutrition supplies in animal feed/fodder and adjustment of the herd structure. Pilot project interventions will be carried out in areas under grass-livestock balance areas. Participating herders from these areas will continue receiving support from the on-going PES scheme. Project activities will take full account of grassland biodiversity, GRFA and IAS issues to ensure the conservation and sustainable use of endemic grasses and livestock species, and the prevention and control of IAS as appropriate. 22. Selection of project beneficiaries will be done through a randomized and transparent selection process to ensure proper design and implementation of a robust IE that can generate concrete evidence of project impacts. To select the treatment and control groups of herder households, sample restrictions will be applied first to exclude herder alliances with high elevation of winter pastures (over 5,000 m) or with less than four herder households from all 27 NVs. For each AV, their NVs will be stratified and then randomly selected as treatment villages and half as control villages. This stratification process will seek a balance on key village-level characteristics that are likely to determine project-level outcomes, such as average elevation of winter pastures, soil types, and remoteness/accessibility. After the selection of treatment and control villages, a randomized process will be adopted to select three alliances from each treatment and control village as treatment and control alliances, respectively. It is expected that a total of 42 treatment alliances and 39 control alliances will be selected. From treatment and control alliances, four herder households will be selected as either treatment or control herder households. All treatment and control herder households will be interviewed for the detailed baseline, including their grassland management and herding practices. Treatment herder households will receive project support to improve their grassland management and herding practices. All herders will receive support from existing government programs. For the randomized selection of alliances and herder households, public drawing events will be organized to ensure herders’ full confidence in the selection process. 23. To receive project support, at the beginning of each year, treatment herder households will sign agreements with Qilian County to participate in project activities. Such agreements will detail clearly the 14 The government plans to finance in parallel the enhancement of additional 667 hectares of cultivated grasslands. Page 12 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) responsibilities of treatment herder households, including a list of agreed grassland management and herding practices and associated technical instructions, technical support provided by the project, key results indicators to be monitored and reported, and the PES payment criteria and levels for verified implementation of agreed practices. Treatment herder households will be requested to invest their own resources first to implement such practices and keep evidence of their performed activities, such as payments to no-till seeding/fertilization services and fodder. As needed, treatment households with financial constraints could apply for partial support (advances) to carry out their agreed activities. Existing and project-supported extension services will provide needed technical support to all treatment households. In this regard, farmer field schools will be organized at the NV level to help treatment group herders better understand project-promoted climate-smart grassland management and herding practices. 24. At the end of each year, project-specific PES payments will be paid to treatment herder households based on their actual implementation results of agreed project activities. To obtain concrete evidence on the implementation and effect of project interventions, this component will recruit independent M&E consultants to verify grassland management and herding results at both treatment and control herding households. Advanced and low-cost monitoring techniques, such as satellite imaging and global positioning system tracking, will be used as appropriate to collect field data. Strict M&E requirements of IE will be followed for data collection. At the mid- term review, the project will examine the possibility of linking PES payments to actual improvements in grassland productivity or soil carbon based on M&E results of the first two years. Such a linkage between PES payments and actual performance could ensure the long-term sustainability of project interventions. 25. Component 2: Policy and Strategy Development (GEF Financing: US$450,000). This component will first support MARA to distill lessons learned from Component 1 activities into policy recommendations that may influence future grassland conservation policies and programs at the county, provincial, and national levels. In this regard, the first set of policy recommendations will be on measures to scale up climate-smart grassland management and herding practices in future grassland conservation programs. The second set of policy recommendations will be on how to design and implement evidence-based PES schemes to link financial incentives with actual achievements of desired conservation practices and results. Related to these policy recommendations, technical guidelines on climate-smart grassland management and herding practices and evidence-based PES systems will be prepared to support the policy discussions at the county, provincial, and national levels. 26. This component will support a study on the valuation of ecosystem services provided by grasslands under the project. This study is deemed necessary because it will help monetize such ecosystem services and thus help stakeholders understand better benefits from grassland conservation. Its results will also help refine the payment levels to be considered in future grassland PES schemes. 27. The component will also examine actions needed to include carbon credits generated from improved grassland management practices into China’s national carbon trading system. Currently, the national carbon trading system is in the process of including forest carbon to provide carbon market incentives for forest conservation. 28. Component 3: Knowledge Management (GEF Financing: US$420,520). This component will support first the creation of a project website and information dissemination through this web platform. It will also support MOARA to develop a knowledge management and capacity building strategy through broad consultations. Under the strategy, MOARA expects to organize and participate in knowledge exchange events domestically and Page 13 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) internationally on sustainable grassland management. Such events will on one hand, help MARA and its experts to strengthen their capacity on key topics of this project, for example, climate-smart grassland management practices and IE. On the other hand, these events will also help MARA disseminate project results to wider audiences and thus to provoke necessary technical discussions and policy debates on the significance of project results and the possibility of scaling up such interventions in Qilian, Qinghai, and at the national level. 29. This component will support knowledge management activities organized under the Partnership Program to ensure the project can learn best practices on sustainable GRFA uses and IAS management from – as well as exchange lessons learned from project activities with – other child projects. In addition, this component will support M&E activities of the Partnership Program, including but not limited to (a) sharing of annual project progress reports with the program and (b) participating in annual review meetings of the program. 30. Component 4: Project Management (GEF Financing: US$179,480). This component will support MARA to properly manage project implementation in closely collaboration with Qinghai Department of Agriculture and Rural Development (QDARA), Qilian Agriculture, Water Resources, Science and Technology Bureau (AWRSTB), and the Mole Township Government. C. Project Beneficiaries 31. The project’s beneficiaries under Component 1 will be project herders from the Mole Township of Qilian County, estimated to be around 160 households. Its beneficiaries for Components 2 and 3 are officials from MARA and provincial and county agricultural and grassland management agencies. In addition, researchers and concerned stakeholders will also benefit from project interventions by participating in project activities and sharing project-generated knowledge directly and indirectly. D. Results Chain 32. The figure shows the results chain of this proposed project. Annex 2 of this document shows how this child project fits into the Partnership Program’s components and will contribute to selected results of the Partnership Program. Overgrazing Grassland Increase in grass Sustainable use under a management producity, soil carbon of grassland changing pilots and herding incomes ecosystems climate PES payments Policy Effective PES Pilot of not linked to recommendations on schemes for evidence-based grassland conservation evidence based PES PES scheme conservation results Problem Statements Activities Outputs Outcome s Figure 1: Result Chain Page 14 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) E. Rationale for Bank Involvement and Role of Partners 33. As noted, this project supports directly sustainable national resource management priorities of the latest Country Partnership Strategy (FY13–16) and the Systematic Country Diagnostics (2017). As the latest operation under the World Bank’s long-term partnership with the Government and China on climate change and agricultural development policies and programs, this project was highlighted in the Memorandum of Understanding on Climate Change Cooperation between the Government of China and the World Bank in January 2014. Technically, the World Bank’s value addition is based on its leadership on climate-smart agriculture development and successful cooperation between MOA (now MARA) and the World Bank on the preparation of the China Climate Smart Staple Crop Production Project (P144531). Specifically, the World Bank’s support will help China to (a) access international best practices on climate-smart and participatory grassland development and on evidence- based policy making and (b) adopt internationally acceptable methodologies and principles to properly monitor, verify, and report GHG emissions from its grassland conservation efforts. 34. As a child project under the Partnership Program, the World Bank will work closely with UNDP, the lead GEF agency for the Partnership Program, and FAO on program-related knowledge management activities. On one hand, knowledge gained from other child projects on GRFA and IAS will be shared with this project to ensure such issues are properly considered during the design and implementation of this project. On the other hand, the project’s experience on evidence-based policy making will be disseminated under the Partnership Program. Details of program coordination arrangements are included in Annex 2 of this document. F. Lessons Learned and Reflected in the Project Design 35. Fair and Transparent Process for Beneficiary Selection. As the project aims to pilot an evidence-based PES scheme, its design has followed requirements of a robust IE approach. Among others, the approach requires statistically randomized selection of project beneficiaries. To ensure full participation of herders of the treatment group and full understanding of herders of the control group, a fair and transparent process will be critical to the proposed pilot. Learning from the IE in other countries (for example, a forest carbon PES project in Uganda), the project will adopt a robust and transparent randomization process to identify treatment and control alliances.15 This process is expected to ensure full support of all herders in the project town and avoid any misunderstanding from Mole herders not receiving project support. 36. Climate-Smart Agriculture Principles. Following the global discourse, the project has designed activities to address all three elements of climate-smart agriculture – resilience, mitigation, and livelihood. By investing in grassland restoration activities, the project will help increase carbon sequestration from grassland ecosystems through both increased productivity and soil carbon sequestration. In addition, the project will help reduce GHG emission from livestock production by improving animal dietary inputs and shortening animal production cycles. All these will contribute to global efforts to reduce GHG emission. On the adaption side, restored grasslands will have increased grass and microbial biodiversity, which will increase resilience of grassland ecosystem. Better grassland and livestock productivity through improved grassland management and livestock production practices will help herders improve their capacity to deal with unexpected climate events. Finally, the project’s evidence- based PES interventions will not stop project beneficiaries from obtaining their entitled subsidies from existing 15Jayachandran et. al, 2017. “Cash for Carbon: A Randomized Trial of Payments for Ecosystem Services to Reduce Deforestation.� Science 357 (6348): 267–273. Page 15 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) PES schemes. In addition, by improving their grassland management and livestock production practices, project beneficiaries are expected to increase their herding incomes. 37. Drivers for Catalytical Effects. As learned from the previous PRC-GEF partnership, the design of this project has emphasized the importance of anchor policy actions on concrete on-the-ground actions. 16 Its preparation also mobilized full cooperation of key stakeholders. In particular, after the government reform in March 2018, MARA has maintained closely cooperation with the Ministry of Natural Resources (MONR), which now has an overall responsibility of monitoring and regulating the use of natural resources (including grasslands), and the State Forest and Grassland Bureau (SFGB) which is now managing the conservation and restoration of grassland ecosystems. MARA will maintain close cooperation with these stakeholders during project implementation to ensure that policy recommendations generated from the project’s pilot activities will be fully understood and owned by these stakeholders. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 38. The project’s institutional arrangements are detailed in Annex 1. At the national level, a National Project Steering Committee (NPSC) will be created after project approval. Led by MARA with participation of the MONR, SFGB, and other national stakeholders, the NPSC will guide project implementation, make decisions on major implementation issues, and review and consider policy recommendations developed under the project for national adoption. The NPSC will be supported by a National Project Management Office (NPMO) established under MARA, which will coordinate project stakeholders at the national and provincial levels and manage overall project implementation. 39. In Qinghai, a Provincial Project Steering Committee (PPSC) will be established. It will be led by QDARA with participation of the Qinghai Forest and Grassland Department (QFGD), the Haibei Tibetan Autonomous Prefecture Government, and provincial stakeholders. PPSC will oversee project implementation in Qinghai, ensure timely delivery of provincial commitments, and review and consider policy recommendations developed under the project for provincial adoption. PPSC will be supported by a Provincial Project Management Office (PPMO) to be established in QDARA. In terms of project implementation, PPMO will liaison closely with both the NPMO and the Qilian County Project Management Office (CPMO) to ensure timely implementation of proposed project activities in the province. 40. In Qilian, a Qilian Project Leading Group (QPLG) will be established. It will be led by the Vice County Head in charge of agriculture and grassland issues with representatives of Qilian AWRSTB, Forest and Grassland Bureau (FGB), Mole Township Government, and other relevant county agencies. QPLG will oversee project implementation in the county, ensure timely provision of county commitments, review and consider policy recommendations developed by the project for county adoption. QPLG will be supported by Qilian CPMO to be established under the Qilian AWRSTB. This CPMO will have members from village working groups of the Mole Township Government and manage project implementation in Mole directly. CPMO will sign agreements with project herders at the beginning of a year and verify their implementation results at the end of the year. 16 https://www.thegef.org/sites/default/files/publications/China-knowledge-series-1-2012_1.pdf Page 16 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) 41. A GEF Grant Agreement (GA) will be signed between the Bank and the MOF on behalf of the People’s Republic of China. Based on that, the MOF will sign an On-Granting Agreement with MARA to authorize MARA to manage the GEF grant and project implementation. MARA will then formally sign an implementation agreement with the Qinghai Provincial Government. After that, the Qinghai Provincial Government will sign an implementation agreement with Qilian County Government. These agreements will detail roles and responsibilities of project implementation of concerned governments and agencies. A Project Implementation Manual (PIM) has been prepared to provide detailed guidance on all aspects of project implementation. B. Results Monitoring and Evaluation Arrangements 42. This project will implement a pilot evidence-based PES scheme. As noted under Component 1, the project has adopted a robust IE methodology to identify treatment and control groups of beneficiary herders and monitor results of their adoption of new practices. Specialized M&E consultants on grassland productivity, social impacts, grassland biodiversity, GHG emission, and environmental impacts will be recruited during project implementation to collect field data and evaluate key conservation and economic impacts of project interventions by comparing data from both treatment and control groups. In addition, NPMO and CPMO will collect progress data on other results indicators. The project’s results indicators and M&E arrangements are detailed in Section I of this document. 43. To monitor GHG emissions and removals by sinks from project activities, sample households will be selected from both treatment and control groups of herder households through stratified random sampling, based on soil types, geographical locations and site conditions and categorized under three different strata (QL-1, QL-2, QL-3). After that, grassland plots corresponding to sample households will be selected for monitoring to track the change of biomass and soil organic carbon. This monitoring will cover major sources of GHG emissions and removals by sinks. The monitoring of emissions will cover methane (CH4) emission from livestock; N2O emissions from fertilizer inputs to grasslands; and methane (CH4) and nitrous oxide (N2O) emissions from manure management. The other minor sources of emissions include from fossil fuel use in agricultural machinery and transportation used for grassland management practices under the project implementation. The monitoring of GHG removals by sinks will focus on the increases in carbon sequestered in grass vegetation and soil. For the purpose, the above-ground biomass and soil carbon pools of grassland sample plots will be measured to estimate the changes in the GHG removals by sinks. The net GHG emission reductions are proposed as a sum of reduced GHG emissions and increased GHG removals by sinks of the project scenario. The net GHG emission reductions of the project represent the increase in soil carbon in the project area in tons of CO2e, the PDO indicator for grassland carbon storage. C. Sustainability 44. The project’s sustainability is rests on the design of this project under the context of supporting the Government of China to achieve developmental targets outlined in the NSDAP (2015-2030) and its commitments under China’s NDC. By having an objective of helping China pilot evidence-based and climate-smart grassland management practices, the project will help national and local stakeholders to take new approaches on the conservation and sustainable uses of grassland ecosystems. For the first time, they will learn scientific but effective ways to design grassland policies, collect policy implementation data and evaluate policy impacts. In doing so, policy recommendations based on concrete results of this project will help China reform its existing and future grassland conservation programs to link desired conservation results with PES payments. Through such policy reforms, project piloted climate-smart grassland management and herding practices, and evidence-based policy design and implementation approaches will be scaled up within the project provinces and nationally. Page 17 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis 45. Technically, the project has selected those climate-smart grassland management and herding practices that have been piloted individually with positive results with often a small scale. The integration of these technologies as a suite of technical interventions is technically feasible. Recognizing capacity constraints of targeted herders, the project has designed technical assistance activities to ensure that they can properly implement such practices. For the PES pilot, extensive consultations with county and township stakeholders have confirmed its feasibility. Detailed implementation arrangements will be agreed and disclosed before the initiation of this pilot. 46. The proposed project is expected to deliver positive financial and socioeconomic benefits. Specifically, the project’s support to climate-smart and sustainable grassland management and herding practices will reduce GHG emissions, maintain and increase soil carbon sequestration, and improve grassland productivity and efficiency of livestock production. More significantly, such practices will help improve resilience of grassland ecosystems that are provide important ecosystem services to the local, national and global communities. As a pilot project, valuation of such ecosystem services will be examined during project implementation. Annex 3 provides details of the financial and economic analysis of this project. B. Fiduciary (i) Financial Management (FM) 47. The NPMO established under MARA is managing an ongoing GEF project with the Bank as the GEF implementing agency and will manage the overall implementation of proposed new project. Delegated by MARA, the Rural Energy and Environment Agency (REEA) of MARA will help NPMO manage GEF Grant proceeds, including overseeing the project’s Designated Account (DA). In Qinghai, PPMO will only be responsible for the coordination and review of disbursement requests submitted by the Qilian CPMO. As all pilot activities will be implemented in Mole, the Qilian CPMO will mobilize resources and staff from the Township Government to support project implementation. 48. FM Capacity Assessment. The FM capacity assessment with the NPMO, PPMO and CPMO had identified three FM risks: (a) project staff at CPMO are new to Bank’s operation which may cause inefficiency and ineffectiveness of project implementation; (b) the capacity of NPMO is weak as demonstrated under the current GEF project; and (c) remoteness of project sites may prevent proper monitoring of the delivery of GEF grant proceeds to herders in the form of subsidy (i.e. PES payments). Mitigation measures to address these risks are: (a) the Bank will provide general and well-designed training on FM and disbursement; (b) the report-based disbursement method will be adopted for this project; and (c) a tailored internal control system will be designed for the subsidy activities and simplified disbursement procedures will be prepared to ensure proper uses and timely delivery of project funds. With these mitigation measures, the project’s FM arrangements could satisfy the minimum FM requirements, and the residual FM risk is rated as Moderate. 49. Disbursement Arrangements. Three disbursement methods are available for the project: (a) advance; (b) reimbursement; and (c) direct payment. The primary disbursement method will be advances to the segregated Page 18 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) US dollar DA opened at commercial banks acceptable to the Bank. The DA will be managed by the host of NPMO – REEA. 50. Withdrawal Application (WA) will be prepared to request disbursements from the Bank and to document the use of Bank financing. WAs will include supporting documents in the form of financial reporting as specified in the Disbursement Letter issued by the Bank. 51. The GEF grant will disburse against eligible expenditures (taxes inclusive) indicated in the table below. Sub-grants refer to the subsidy that will be granted to the households that have implemented climate-smart grassland management practices (no-till seeding, no-grazing in Spring, enhancement of cultivated grasslands) and herding practices (improvement in nutrition supply and adjustment of herd structure) after the completion and verification of these activities. Table 1: Disbursement Categories and Percentages Disbursement Category Amount (million US$) Percentage of expenditure financed Sub-grants, Goods, Consulting Services, Non- consulting services, training and workshops, 3,769,083 100 incremental operation cost TOTAL 3,769,083 52. The incremental operating costs refer to the expenditures incurred for purpose of project management and implementation based on the approved annual work plans and budgets on account of office supplies and consumables, office rental, utilities, bank charges, communications, mass media and printing services, interpretation and translation services, vehicle rental/maintenance and insurance, building and equipment maintenance, local transportation, domestic and international travel, lodging and subsistence allowances, and salaries of contractual and temporary project management staff, but excludes the salaries and any salary supplements of government officials. 53. Budgeting. By the end of July of each year, CPMO is required to prepare and submit its annual budget for the next calendar year to PPMO and NPMO for review and approval. The consolidated annual budget plan will be submitted to the Bank before the end of October. Budget variance analysis will be conducted regularly thus enabling timely corrective actions. Besides GEF grants, the government will invest US$22.5 million to the project as parallel financing. As most government contributions will be in the form of domestic financed projects and included in the government’s normal budget preparation and execution process, it was agreed that such contributions will be excluded from project budgeting and accounting. As such contributions are GEF co-financing per GEF policies, PMOs are required to collect and present information of these contributions in project progress reports submitted to the Bank twice a year as supplementary information. The Bank will supervise the delivery and implementation of such contributions against the financing plan prepared by NPMO for government contributions during project implementation and report its information to the GEF per GEF requirements. 54. Funds Flow. For activities implemented by NPMO, the grant proceeds will be paid to service providers directly from DA to be set up at and managed by REEA or by the Bank at NPMO’s request. For the activities implemented by CPMO, CPMO is responsible for collecting supporting documents, preparing payment requests, and submitting those documents to NPMO for review and approval. A FM Manual has been prepared as part of the PIM to define responsibilities of concerned agencies and standardize the payment and disbursement Page 19 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) processing procedures and documentations. The proposed flow of Bank funds and WAs (applications submitted from DA to World Bank) or payment requests (applications submitted from CPMO to NPMO) are shown in the fund flow chart below. 55. Accounting and Financial Reporting. Accounting regulations issued by the International Department of MOF and currently used by all grant recipients in China will be followed to maintain project accounting records and prepare project financial statements. However, to better present project implementation, the reporting format will be customized to adequately reflect project implementation and uses of grant proceeds. The project accounting records and project financial statements to be prepared include: (a) balance sheet of the project, (b) summary of sources and uses of funds by project components, (c) statement of GA implementation, (d) DA statement; and (e) notes to the financial statements (required only for annual financial statements). Figure 2: Fund Flow Chart World Bank REEA/NPMO County PMO Contractors, suppliers, herders Funds flow Application flow 56. NPMO and CPMO will manage, monitor and maintain project accounting records. NPMO will also incorporate DA information to prepare the project financial statements. The unaudited semi-annual project financial statements will be prepared and furnished to the Bank by NPMO as part of WAs no later than 60 days following each semester (the due dates will be August 31 and February 28). 57. Internal Control. The general accounting policy, procedures and regulations have been issued by MOF and will be followed by the project. The Project’s FM Manual will also clearly define responsibilities and standardize payment and disbursement tasks. Based on the agreed project design, CPMO will sign implementation agreements with beneficiary herders. Herders will be fully informed about procedures and requirements before signing the agreement. The list of herders who received the subsidy should be disclosed in Mole Township. 58. The contents of agreements should include, but not limit on, the following areas: (a) project activities to be implemented; (b) agreed implementation arrangements; (c) main technical criteria; (d) roles and responsibility of each party; (e) expected results; (f) monitoring, reporting and verification arrangements; (g) grant disbursement arrangement; and (h) non-compliance and dispute resolution arrangement. Herders will be responsible for implementing project activities in line with the required procedures and practices. After completion of the Page 20 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) activities, CPMO will conduct verifications. If CPMO are satisfied with verified results, the pre-determined subsidies will be transferred to the herders’ bank accounts through the one-card system that has been used by the government to transfer other subsidies such as those under the ongoing grassland conservation PES schemes. The certificate issued by CPMO will be the only supporting document for project disbursement and accounting purposes. 59. Audit Arrangements. The annual audit report of the project financial statements will be due to the Bank within six months after the end of each calendar year. According to the agreement reached with MOF and China National Audit Office, the audit report and audited financial statements will be made publicly available on both World Bank and official websites of the following audit office. The responsible agency and timing are summarized as follows: Table 2: Audit Arrangements Audit Reports Issued by Submitted by Due date Consolidated project Audit Service Center of China National Audit NPMO June 30 of each financial statements Office for Foreign Loan and Assistance Projects calendar year (ii) Procurement 60. The overall procurement risk for the proposed project is assessed as Moderate. The project procurement will be carried out by the existing NPMO managing the GEF China Climate Staple Crop Production Project (P144531). The procurement capability assessment of NPMO identified that through preparation and implementation of the ongoing GEF Project NPMO has accumulated knowledge on Bank project management including procurement. The key risks identified were: (a) the designated procurement staff for this project needs to be further trained on Bank procurement regulations and procedures; (b) NPMO has knowledge gaps in carrying out procurement in accordance with the Bank’s procurement regulations, rules and procedures; and (c) technical, procurement and contract management capacities of NPMO are insufficient and thus may cause delays in proposals evaluation by the external experts, contract awards and payments. 61. To mitigate these risks, the following measures will be adopted during project implementation. (a) The Bank has provided extensive training to the NPMO on the new procurement regulations. More in-depth training will be delivered to the NPMO during project implementation on a regular basis. Hands-on support will be provided as needed. (b) Appropriate prior reviews will be executed by the Bank to ensure that project procurement complies with Bank regulations. Procurement post review will be conducted annually, and relevant findings will be shared with PMO in a timely manner. (c) A technical expert penal will be established for (a) conducting quality control of Terms of Reference and Request for Proposals documents of consulting contracts, (b) evaluation of proposals, and (c) review and management of consultants’ outputs. Prior to an evaluation, NPMO will introduce the Bank’s policies on proposal evaluation to its technical experts. 62. Applicable Procurement Rules and Procedures. Procurement for the project will be carried out in accordance with the “World Bank Procurement Regulations for Recipients in Investment Project Financing� , Page 21 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) dated July 2016, revised November 2017 and August 2018 (hereafter referred to as the Bank procurement regulations), as required by the provisions of the GA. In addition, the Bank’s Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, dated October 2006, and thereafter revised in January 2011 and July 2016, will be applicable. The Bank’s procurement planning and tracking system, Systematic Tracking of Exchanges in Procurement, will be used to prepare, clear and update Procurement Plans (PPs) and record all procurement transactions. 63. Project Procurement Strategy for Development (PPSD) and PP. As works are not anticipated in the project, the project procurement will be for goods, non-consulting, and consulting services. A PPSD was developed by the NPMO and reviewed by the Bank. The initial PP covering at least the first 18 months of project implementation was prepared by the NPMO and reviewed by the Bank. The PP was finalized and cleared by the Bank before project negotiation. The PP will be updated, reviewed and agreed with the Bank annually, or as required, to reflect project implementation needs. 64. Procurement of Goods and Non-Consulting Services. A small portion of project procurement will be for goods and non-consulting services, such as equipment for developing publicity products, toolkits for farmer field schools, preparation of pamphlets and infographics, compilation of imagery data, and production of briefing materials. Given the small value of these contracts, open competition by approaching national markets will be applied. Request for Bids or Request for Quotations will be adopted depending on the value of the contract to be procured. 65. Procurement of Consulting Service Firms. Most consulting service firms will be selected through Open Competition by approaching international/national markets. Quality and Cost-Based Selection (QCBS) and Selection Based on Consultants’ Qualification (CQS) will be used in most contracts. Though the selection will be conducted by approaching international markets, a fair number of local experts will be needed in the team composition considering the advantages of including local experts with respect to the local language, knowledge and expertise. For relatively small value consultant contracts, open competition by approaching national markets may be applied when there is no value in approaching the international market. 66. Procurement of Individual Consulting Services. Most individual consulting services will be procured through Open Competition. Direct Selection (DS) may be used in exceptional cases where the individual consultant has relevant experience and qualifications of exceptional value to the assignment, or where the assignment is for an expected duration of less than six months. 67. Procurement and Selection Methods and Prior Review Thresholds. Based on the procurement risk assessment, the table below indicates the procurement and selection methods and prior review thresholds for goods, non-consulting services, and consulting services to be procured by the NPMO under the Project. Contracts not subject to prior review will be subject to post review. Page 22 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Table 3: Procurement and Selection Methods and Prior Review Thresholds Expenditure Contract Value Procurement Method Bank Prior Review Category (US$) Goods/IT ≥ 10 million ICB N/A Systems and >=500,000 & < NCB All contracts >= US$4 million Non-Consulting 10 million Remarks: Where goods are not normally Services available from within China, the method of procurement will be ICB even if the contract value is less than US$10 million < 500,000 Shopping N/A N/A DS All DS contracts ≥ US$4 million Consultants ≥ 300,000 QCBS, QBS, LCS, FBS Firms: All contracts ≥ US$2million; Firms: All DS contracts ≥US$2million; < 300,000 QCBS, QBS, LCS, FBS, CQS IC ≥ US$400K; N/A DS DS for IC: ≥ US$400K N/A Individual Consultant Notes: ICB: International Competitive Bidding CQS: Selection Based on the NCB: National Competitive Bidding Consultants’ Qualifications DS: Direct Selection IC: Individual Consultant selection QCBS: Quality- and Cost-Based Selection procedure QBS: Quality-Based Selection N/A: Not Applicable LCS: Least Cost Selection FBS: Fixed Budget Selection 68. Post Review. The Bank’s procurement team and/or external auditors will conduct field visits for post review of procurement actions every 12 months. The initial post review sampling ratio will be 20 percent. This ratio will be adjusted periodically during project implementation based on the performance of the NPMO. 69. Procurement Complaint Mechanism. A complaint mechanism will be in place in the NPMO by project launch. C. Safeguards (i) Environmental Safeguards 70. The project is classified as Category B project because its impacts are temporary, limited and site specific in nature, and can be readily managed with available cost-effective mitigations measures. Applicable environmental safeguard policies for the project are: Environmental Assessment (OP4.01), Natural Habitats (OP4.04), Pest Management (OP4.09). 71. Environmental Assessment (OP4.01). Project activities are designed to help increase productivity of both natural and cultivated grasslands, reduce grazing pressure of natural grasslands, improve livestock production efficiency, and reduce pest damage to grass productivity. Successful implementation of these activities will help generate positive environmental benefits (such as increased carbon sequestration and increased grassland Page 23 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) biodiversity) and social benefits (such as increased livestock productivity) in the long run. However, the use of pesticides, disturbance of natural grasslands, use of fertilizers, and repair of fencing and livestock pens will generate negative environmental impacts (e.g. noise, air, wastewater, solid wastes, soil erosion etc.) that are short-term, modest, local, reversible. It is expected that project activities will not generate any potential large scale, significant and irreversible impacts. 72. Environmental Impact Assessment (EIA), including Environmental Management Plan (EMP) was prepared for the project in accordance with applicable Chinese laws and regulations and the World Bank safeguards policies. Accordingly, the project has integrated the preventive and mitigation measures into the project design, construction and operation respectively in the EIA and EMP to avoid, minimize or mitigate the anticipated adverse impacts to an acceptable level. 73. The EIA/EMP are prepared based on national norms, proven practices in other Bank financed projects and practices recommended in Environmental Health and Safety Guidelines of World Bank Group. The EMP specifies all aspects of environmental management issues during the entire project cycle, including but not limited to, site selection, construction dust management, air pollution control, noise impact control, water pollution control, solid wastes management, soil erosion control, public and workers’ health and safety, as well as public consultations on the environmental issues. It also includes the reporting, monitoring and supervision arrangements for the project implementation. With proper implementation of the proposed mitigation measures, the potential adverse impacts will be avoided, eliminated entirely, minimize or mitigated to an acceptable level. 74. Natural Habitats (OP 4.04). This policy is triggered as the project will support sustainable management of productive but ecologically fragile natural grasslands. Project areas were carefully screened and selected to exclude grassland areas located within the critical natural habitats such as the core and buffering zones of the Natural Reserve from project interventions. EIA has collected detailed information on natural habitats of the project town and analyzed potential impacts of project activities and associated government programs on such natural habitats. Based on that, EMP has included proposed measures to avoid, minimize and mitigate identified negative impacts, for instance, carefully selection of indigenous grass/fodder species to avoid the use of IAS, and design monitoring plans to monitor the pest and biodiversity of the grassland ecosystems etc. Adequate mitigation measures have been incorporated in the EMP to manage the limited ecological impacts expected during project implementation. It is concluded that successful implementation of the project will reduce of the use of pesticides, promote grassland restoration, support the sustainable improvement of the grassland ecosystems, reduce soil erosion, and are beneficial to water conservation. 75. Pest Management (OP 4.09). This policy is triggered as the government's ongoing programs finance the use of pesticides to control grassland rodent and insect pests. A Pest Management Plan (PMP) was prepared as part of the EMP to help promote sound pest management practices, including integrated pest management (IPM), in these government programs at project sites. The PMP identifies major pest issues, pesticide management methods, M&E activities, and capacity building needs for project stakeholders. It incorporates the existing good pest management practices from the project areas, outlines IPM-based pest control and management methods, and provide concrete recommendations to improve pest management practices. Such recommendations include promotion of IPM to reduce the use of toxic pesticides, improvement in pest forecasting, use of physical prevention measures, promotion of biological and botanical pesticides, and capacity building for herders and governmental agencies. The PMP provides a list of pesticides that may be used under the project in compliance with World Health Organization's recommended categories. Costs of the training and monitoring programs were budgeted in the project cost. Page 24 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) 76. Public Consultation and Information Disclosure. During the preparation of the EIA/EMP, key stakeholders were identified to ensure well-targeted and meaningful consultations. Public consultations, meetings and interviews have been conducted with herders, local officials and other key stakeholders. This included persons of different gender, socioeconomic and educational backgrounds, groups, and occupations. Two rounds of public consultations were conducted with the participations from the general public and key stakeholders. The first round took place in July 2018, and the second round was carried out after the draft EA report was completed in May 2019. The majority of those consulted expressed strong support for the project. The EMP incorporated countermeasures to address the opinions and concerns of the people consulted. Such countermeasures are also fully incorporated into the project design. 77. Environmental Safeguard Documents Disclosure. In accordance with the Bank disclosure policy, prior to project appraisal, the latest safeguards documents, including the EIA/EMP, PMP were disclosed at six AVs of Mole Town on May 14, 2019 and made available on the REEA website on July 2, 2019. The environmental safeguard documents were also disclosed at the World Bank website on July 6, 2019. (ii) Social Safeguards 78. Social Impacts and Social Assessment (SA). Project interventions are expected to generate long-term positive benefits from sustainable grassland management and increase in livestock productivity and herding income of the affected households of Mole/Qilian. However, temporary restrictions on access to certain grassland areas and adjustments to herd structure may cause short-term decrease in herding income of the affected households from the multiethnic township. A SA was prepared to identify project stakeholders (including ethnic minority herders), to engage such stakeholders to participate in project design process, to assess project impacts on project affected households, and to propose measures, in particular the proposed PES scheme, to mitigate negative social impacts. The project’s SA has focused on potential income loss of the affected households as well as concerns and demands of the ethnic minority herders, women and the poor to ensure that they can participate in project activities in a meaningful way and benefit from project interventions proportionally. The SA collected data from a properly classified and sizable of household samples.17 The SA also analyzed baseline information of potential beneficiaries and consulted with them on the proposed grassland management practices and related implementation arrangements during project preparation. 79. Ethnic Minority. Indigenous People Policy (OP 4.10) is triggered as the majority of the population of Mole/Qilian are ethnic minorities. An Ethnic Minority Development Plan (EMDP) was prepared based on findings of the SA. EMDP has presented social contexts of the project areas, e.g. social infrastructure and income sources for different ethnic groups, identified project impacts (positive and negative) on these groups, proposed measures to mitigate such impacts, and estimated budget for the implementation of such measures. 80. Involuntary Resettlement (OP4.12). Construction activities related to fence and livestock pens will be performed on land areas under the grassland management contracts of project herders. As such, land acquisition is not needed. However, temporary restrictions on access to and uses of certain natural grassland areas may potentially cause income reduction of the affected herders in short-terms. Therefore, the policy OP4.12 is triggered. A Process Framework (PF) was prepared with specified procedures and measures to ensure the 17The sample size is no less than five percent of the total affected or participated households, of the total female populations, and of 20 percent of poverty households. Page 25 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) livelihood of the affected population will not only be restored but strengthened. Gender differentiated consultation, analysis and measures was conducted during the process of PF preparation. 81. Gender. SA during project preparation found that more than 30 percent of consulted herders were women. It notes that female herders have lower participation rates than their male counterparts in public consultations due to their lower educational levels and socio-cultural norms. The analysis also indicates that only less than 20 percent of female herders participated in livestock production cooperatives. Based on these, the SA proposed the following measures to mainstream gender issues into project design and implementation: (a) project affected female herders will be treated and compensated equally under project interventions; (b) female herders’ participation rates in the community consultation process should reach at least 40 percent; (c) female herders’ participation rates in technical trainings should reach at least 40 percent; and (d) two gender-related indicators will be closely monitored during project implementation: ratios of female beneficiaries and female trainees. These recommendations have been incorporated into the project design. 82. Social Safeguard Document Disclosure. The SA, the EMDP and the PF were first disclosed locally in all six AVs of the Mole Town on June 26, 2019, on the REEA website on June 27, 2019, and by the World Bank on July 6, 2019. All feedbacks collected by the social assessment and during the disclosure process have been reflected in the final project design. The final EMDP and the final PF were disclosed locally in print on September 1, 2019, on REEA website on August 29, 2019, and by the Bank on September 1, 2019. 83. Social Monitoring. The PF and EMDP have specified monitoring requirements, including social indicators to be monitored, frequency of social monitoring, and reporting requirements of various monitoring activities under the PF and EMDP. 84. Project-level Grievance Redress Mechanisms (GRMs). Project-level GRM systems specified in the PF and EMDP were developed to ensure timely reporting, recording and resolving of project related grievances. These GRMs will allow the access of project herders from largely remote areas. Complaints will be recorded and resolved, as well as reported to the Bank, in a timely manner. (iii) Grievance Redress Mechanisms 85. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress- service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. V. KEY RISKS Page 26 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) 86. Overall risk of this proposed project is rated modest. Key risks are related to technical design, institutional capacity of the implementing agency on both technical side and FM. The first and second risk is associated with the novel nature of the evidence-based PES scheme to be piloted under the project. As IE is still a new concept to China, its design and implement is expected to be challenging to project stakeholders. To mitigate these technical risks, the Bank has held extensive discussions with MARA, its expert teams, and Qilian and Mole stakeholders on key requirements for a robust IE design, specifically on the methodology and process of selecting the treatment and control groups of project herders. The Bank will provide continued support to support MARA and other stakeholders to properly manage the implement of IE. 87. Technically, the project has carefully selected ground-level interventions that would generate positive financial returns to herders. This approach will help project herders continue project-promoted grassland management practices after project completion. With successful pilot of such activities and the evidence-based PES pilot, it is expected that the project will influence the design and implementation of future grassland PES schemes of the government and thus scale up project interventions locally and nationally. 88. The third risk is related to the FM capacity of the implementing agency. Specific mitigation actions have been agreed with the implementing agency on FM requirements for this project. The Bank will monitor these risks closely during implementation and deploy additional mitigation measures as needed. . Page 27 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) I. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: China Climate Smart Management of Grassland Ecosystems Project Development Objectives(s) To pilot climate smart grassland management practices in Qilian County of Qinghai Province. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Natural Grassland Productivity Increase of natural grassland productivity in project areas 0.00 15.00 20.00 25.00 30.00 30.00 (Percentage) Grassland Carbon Storage Increase in soil carbon at 0.00 100,000.00 160,000.00 project sites (Metric ton) Herding Income Net increase of herding incomes in project area 0.00 0.00 3.00 6.00 10.00 10.00 (Percentage) PDO Table SPACE Page 28 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Grassland Management Pilots Herder households adopting improved grassland management practices 0.00 100.00 150.00 160.00 160.00 160.00 (Number) Herders supported with improved grassland 0.00 100.00 150.00 200.00 300.00 300.00 management practices (Number) Female herders supported with climate smart grassland management 0.00 50.00 80.00 100.00 130.00 130.00 practices (Number) Herders' satisfaction rate of project interventions 0.00 50.00 60.00 70.00 75.00 80.00 (Percentage) Grassland areas with improved management practices 0.00 30,000.00 45,000.00 50,000.00 50,000.00 50,000.00 (Hectare(Ha)) Plant biodiversity of project 0.89 0.90 0.92 grasslands (Number) Policy and Strategy Development Policy and Strategy Developed 0.00 0.00 0.00 3.00 4.00 5.00 (Number) Knowledge Management Herders trained with project promoted grassland management practices 0.00 1,500.00 3,000.00 4,500.00 6,000.00 7,500.00 (Number) Page 29 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) RESULT_FRAME_TBL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Female herders trained with project promoted grassland 0.00 500.00 1,000.00 1,700.00 2,400.00 3,000.00 management practices (Number) Participation in Program 0.00 1.00 2.00 3.00 4.00 5.00 coordination events (Number) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Field monitoring follows standard Field Net primary productivity of sampling and analysis monitoring natural grasslands in project methodology. Satellite Increase of natural grassland productivity Annual and satellite M&E Consultants. areas, comparing data from data will be obtained in project areas monitoring the treatment and control directly from public data. groups. and/or commercial sources. Soil carbon content in Field Standard methodology grasslands of project areas, Baseline, Y3 monitoring for soil carbon M&E Consultants Increase in soil carbon at project sites comparing data from the and Y5 data measurements. treatment and control groups Page 30 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Net herding income of Households' Surveys/interviews with Net increase of herding incomes in project project herders, comparing Annual M&E Consultants. records. herder households. area data from the treatment and control groups. ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Visits to project sites, Actual adoption of project Herders' interviews of project promoted grassland records; field herders, and review of County PMO and M&E Herder households adopting improved Annual management practices by monitoring available documents Consultants grassland management practices targeted herders in the data (such as treatment group. contracts/receipts). Review of Project implementation Herders received project implementati records and County PMO and M&E Herders supported with improved support to adopt climate Annual on records surveys/interviews Consultants. grassland management practices smart grassland and herders' performed by M&E management practices. records. Consultants. Review of Project implementation Female herders received implementati Female herders supported with records and CPMO and M&E project support to adopt Annual. on records climate smart grassland management surveys/interviews Consultants. climate smart grassland and herders' practices performed by M&E management practices. records. Consultants. Page 31 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Herders in Surveys performed as County PMO and the Percentage of herders in the the Herders' satisfaction rate of project Annual part of social social monitoring treatment group satisfied treatment interventions monitoring activities. consultant with project interventions. group Review of Implementati implementation Areas of grassland adopted on records records and County PMO and M&E Grassland areas with improved Annual climate smart grassland and herders' surveys/interviews Consultants. management practices management practices. records. performed by M&E Consultants. Field Standard plant Baseline, Alpha diversity measured by monitoring biodiversity monitoring M&E Consultants Plant biodiversity of project grasslands Y3 and Y5 Simpson's diversity index results methods. Review of Implementati Policy and strategies Annual implementation National PMO Policy and Strategy Developed on records. developed under the project records. Training Review of training Cumulative person days of records and records and County PMO and M&E Herders trained with project promoted herders participating in Annual trained interviews/surveys of Consultants grassland management practices technical training of the herders M&E Consultants project. Training Review of training Cumulative person days of Female herders trained with project records and records and County PMO and M&E female herders participating Annual promoted grassland management trained interview/surveys of Consultants in technical training practices herders M&E Consultants organized under the project Participation in Program coordination Cumulative number of Annual Meeting Review of meeting National PMO events participation in the annual records records Page 32 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) review meetings of the parent PRC/GEF Partnership Program for Sustainable Agricultural Development ME IO Table SPACE Page 33 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: China Climate Smart Management of Grassland Ecosystems Implementation Arrangements 1. NPSC, led by MARA with participation of MOF, the National Development and Reform Commission (NDRC), MONR, SFGB, the Leading Group of Poverty Alleviation and Development of the State Council, Ministry of Science and Technology (MOST), the Ministry of Ecology and Environment, National Commission on Ethnic Minorities and All-China Women’s Federation. The NPSC will hold annual meetings to review project implementation progress, discuss and endorse the next year’s implementation plan, and make decisions on major adjustments in project implementation. It will also review and consider policy recommendations developed under the project for national adoption. 2. NPMO, established under the Science, Technology and Education Department and hosted by the REEA of MARA, will be tasked to manages project implementation. It will support NPSC to coordinate all stakeholders to carry out project activities according to the agreed implementation plans. It will assist NPSC in reviewing project implementation issues and making decisions. The NPMO has been established during project preparation. Its key staff members include a PMO director, a FM specialist, a procurement specialist, a project management specialist, and an M&E/safeguards specialist. 3. PPSC, led by QDARA with participation of the Qinghai Finance Department, Qinghai Development and Reform Commission (QDRC), Qinghai Natural Resources Department, QFGD, Qinghai Commission on Ethnic Minorities, the Qinghai Leading Group of Poverty Alleviation and Development, Qinghai Science and Technology Department, Qinghai Ecology and Environment Department, Qinghai Women’s Federation, and Haibei Tibetan Autonomous Prefecture Government. PPSC will coordinate and supervise project implementation in its province, ensure the timely delivery of provincial commitments, and review and consider policy measures developed under the project for provincial adoption. 4. PPMO, hosted in QDARA, supports PPSC to coordinate project implementation issues within the province. It will liaison closely with both the NPMO and the CPMO to ensure timely implementation of proposed project activities. 5. QPLG, led by the Vice County Head in charge of agriculture and grassland issues, will include representative of County AWRSTB; FGB; Finance Bureau; Development and Reform Commission, Ecology and Environment Department; Women’s Federation; Ethnic Groups and Religion Bureau; Poverty Alleviation O ffice; and Mole Town Government. QPLG coordinates and supervises project implementation in the county. It will ensure timely provision of county commitments, review and adoption of policy recommendations developed by the project, and wide adoption of project promoted climate-smart grassland management practices in other towns of the county. 6. Qilian CPMO, hosted by the Qilian AWRSTB and headed by a deputy director of the Bureau and a deputy head of Mole Township, will manage project implementation in Qilian directly. One member of each village working groups of Mole Township will be part of the CPMO to support the implementation of village-level Page 34 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) activities. Existing FM staff of the Qilian AWRSTB will support FM issues for project activities implemented in the county. A dedicated project management specialist will be recruited to support project management activities in the county. 7. A GEF GA will be signed between the Bank and MOF on behalf of the People’s Republic of China. Based on that, MOF will sign an On-Granting Agreement with MARA to authorize MARA to manage the GEF grant and project implementation. MARA will then formally sign an implementation agreement with the Qinghai Provincial Government. After that, the Qinghai Provincial Government will sign an implementation agreement with Qilian County Government. These agreements will detail roles and responsibilities of project implementation of concerned governments and agencies. A PIM was prepared before project negotiation to provide detailed guidance on all aspects of project implementation. 8. For the Partnership Program, MARA will lead a program level steering committee with participations of national project directors of the child projects and representatives of key ministries and the three GEF agencies. Annual program steering committee meetings will be organized to ensure timely exchange of project implementation information as well as share experience and lessons learned from individual child projects. Implementation Support Plan 9. Implementation support will focus on two aspects: (a) technical support on impact evaluation (IE), which is the foundation for the design and implementation of evidence-based PES scheme; (b) capacity building for sound fiduciary management. For IE, qualified economists with rich IE experience of the Bank team will continue supporting MARA to finalize and then implement the evidence-based PES scheme during implementation. Key aspects of support will include: (a) final selection of treatment and control groups; (b) baseline data collection; (c) mid-term data collection; (d) end-of-project data collection; (e) IE data analysis; and (f) IE result interpretation. The Bank team will also support MARA to develop concrete policy recommendations and disseminate project’s IE results at international knowledge exchange events. 10. For fiduciary capacity building, the Bank team will closely monitor fiduciary risk ratings, which will be evaluated on a regular basis by the Bank team. For FM, the review will focus on (a) proper use of the project’s accounting system for recording and reporting, (b) compliance with international control procedures, (c) proper use and reporting of incremental costs, and (d) performance of loan disbursement and fund flow arrangements. For procurement, the review will focus on (a) compliance with procurement policies and procedures, (b) procurement performance, (c) contract management, and (d) record keeping. The Bank team will monitor closely the accounting and procurement processes, including the adequacy of the FM and procurement management system and staff training, especially during the initial implementation stage, to ensure complete and accurate financial and procurement information are recorded and provided in a timely manner. As needed, the Bank team will ensure PMO staff new to Bank’s operation to attend well-designed training, learn from their peers, and receive closer guidance throughout project implementation. Page 35 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) ANNEX 2: GEF Technical Annex COUNTRY: China Climate Smart Management of Grassland Ecosystems 1. Global Environmental Problems. As noted in Paragraphs 2 and 3 of the main text of this document, grasslands provide critical ecosystem services to a large portion of the global and Chinese population. Due to overgrazing associated with rapid population and economic growth, grasslands have been exploited for livestock production benefits over last few decades. Often, productive species are promoted to replace endemic but resilient livestock species. Grassland management with such production centric goals has greatly reduced biodiversity and productivity of grassland ecosystems and switched grasslands from a net carbon sink to a source of GHG emission. Under a changing climate, such management practices also pose significant risks of pest and IAS infestation. Conservation and sustainable use of grassland ecosystems has become a global challenge. 2. Root Causes. For China, the root causes for grassland degradation include: (a) economic development and poverty alleviation policies and strategies that center on productivity; (b) the grassland management contract system that has provided limited incentives for individual herders to adopt sustainable grassland management practices (as noted in Paragraph 3 of the main text of this document); and (c) ineffective herding practices that equate quantity to productivity. 3. Barriers. As noted in Paragraphs 4 and 5 of the main text of this document, the Government of China has recognized the first root cause recently and promoted the conservation and sustainable use of grassland ecosystems, including the implementation of various grassland PES schemes since 2011. However, a number of barriers have prevented these schemes from achieving intended conservation results: (a) a top-down design of the schemes that has yet to address herders’ need and concerns; (b) low level subsidies that m ay compromise herders’ livelihoods if they follow strictly requirements of these schemes; (c) weak monitoring and enforcement that has disconnected PES payments from intended conservation results; (d) rigid implementation arrangements for grazing bans; and (e) uncertainties associated with short-term horizons of these programs. 4. Baseline Scenario. Paragraphs 4 and 5 of the main text of this document provides an overview of the baseline scenario at the national level: the government has tried to promote grassland conservation through various programs with limited achievements. Furthermore, Paragraphs 7-13 of the main text of this document provides detailed baseline situations of the project county Qilian and the project township Mole, which clearly shows significant overstocking at the local level even with the ongoing support from the grassland conservation PES schemes. 5. Project/Alternative Scenario. Paragraphs 14 and 20-30 of the main text of this document present the project scenario, which intends to support climate-smart grassland management practices and an evidence-based PES scheme at the project county. Implemented in parallel to existing grassland conservation schemes of the government, such pilots will explore effective ways to address root causes (b) and (c) by removing barriers (a), (b) and (c) identified above. 6. Incremental Cost Reasoning. This project will be implemented in parallel with the government’s existing grassland conservation programs and PES schemes. The additionality of this project lies in its efforts to test climate-smart grassland management practices and the evidence-based policy design and implementation Page 36 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) approaches that are new to the baseline scenario. Its proposed activities are intended to showcase to all stakeholders how an evidence-based PES scheme can be designed and implemented to help herders change their grassland management and herding practices to achieve desired grassland conservation and livelihood development targets. Results of this project will help MARA to generate concrete policy recommendations that may influence the design and implementation of China’s future PES schemes for conservation and sustainable uses of its grassland ecosystems. As such, this project will provide incremental but catalytic support to help MARA initiate meaningful policy dialogues among stakeholders for a potential reform to improve the effectiveness and efficiency of China’s future grassland conservation policies and programs. 7. Global Environmental Benefits. The project contributes directly to climate mitigation. Through the pilot of climate-smart grassland management and herding practices, the project will help avoid soil carbon releases from degraded grasslands and increased carbon storage from restored and enhanced grasslands at project sites. 8. Key Stakeholders. Annex 1 has presented institutional arrangements for project implementation. The table below provides detailed discussions on roles and responsibilities of key project-level stakeholders. Stakeholder engagements will be reviewed routinely during project implementation to ensure full participation of all key stakeholders. Table 4: Key Stakeholders Stakeholder Roles and Responsibilities MOF and Qinghai Serve as China’s GEF Focal points, MOF will review and sign off project documents. Specifically, Dept. of Finance on behalf of the People’s Republic of China, MOF will sign a GA with the Bank and an On- Granting Agreement with MARA to enable project implementation. Serve as a NPSC member, MOF will oversee project implementation with other stakeholders. It will review and consider policy recommendations of the project in the design and implementation of future national grassland conservation programs. In Qinghai, as a member of the PPSC the provincial Finance Department will oversee project implementation with other provincial stakeholders. It will also review and consider policy recommendations of the project in the design and implementation of future provincial grassland conservation programs. NDRC and QDRC Serve as a NPSC member, NDRC will oversee project implementation with other stakeholders. It will review and consider policy recommendations of the project in the design and implementation of future national grassland conservation programs. In Qinghai, as a member of the PPSC the QDRC will oversee project implementation with other provincial stakeholders. It will also review and consider policy recommendations of the project in the design and implementation of future provincial grassland conservation programs. MARA Serve as the lead national executing agency for the Partnership Program with core responsibilities for agrobiodiversity conservation, IAS Management and productive uses of grassland ecosystems. Led both the Steering Committees of the Partnership and this child project, MARA will work with other stakeholders to supervise the implementation of the Partnership Program and all child projects. For this child project, the Department of Science, Technology and Education of MARA will manage the NPMO to implement this project. MARA will review and consider policy recommendations of the project in the design and implementation of future national grassland conservation programs. Page 37 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Stakeholder Roles and Responsibilities MEE and Qinghai Serve as a NPSC member, MEE will closely monitor project implementation with other Ecology and stakeholders. It will review and consider policy recommendations of the project in the design Environment and implementation of future national natural conservation programs. In Qinghai, as a member Department of the PPSC the Qinghai Ecology and Environment Department will monitor project implementation with other provincial stakeholders. It will also review and consider policy recommendations of the project in future provincial natural conservation programs. MONR and Qinghai As the national ministry oversees the status and use of natural resources (including grasslands), Natural Resources MONR has closely involved in project preparation. As a member of the National Steering Department Committee, MONR will continue supporting MARA to implement this project. It will also review and consider policy recommendations of the project in the design and implementation of future national grassland conservation programs. Correspondingly, the Qinghai Natural Resources Department will oversee project implementation as a member of the PPSC. It will also review and consider policy recommendations of the project in the design and implementation of future provincial grassland conservation programs. SFGB and QFGD In charge of grassland conservation and associated national funding, Grassland Conservation Department of SFGB has actively participated in project preparation. As a member of the National Steering Committee, SFGB will continue supporting MARA to implement this project. It will also review and consider policy recommendations of the project in the design and implementation of future national grassland conservation programs. Correspondingly, QFGD will oversee project implementation as a member of the PPSC. It will also review and consider policy recommendations of the project in the design and implementation of future provincial grassland conservation programs. QDARA As the lead agency for QPSC, QDARA will work closely with MARA and other national, provincial and county stakeholders for project implementation. Within the province, it will ensure full cooperation of all provincial stakeholders, the Haibei Prefecture Government, and the Qilian county stakeholders. It will also ensure timely delivery of provincial funding to parallel activities to the county. It will also review and consider policy recommendations of the project in the design and implementation of future provincial grassland conservation programs. National and Qinghai As members of the NPSC and PPSC respectively, the national and provincial level representatives Leading Groups of will oversee project implementation. They will review and consider policy recommendations of Poverty Alleviation the project in the context of rural development and poverty alleviation at the national and and Development provincial level. National and Qinghai As members of the NPSC and PPSC respectively, the national and provincial level representatives Commissions on will oversee project implementation. They will review and consider policy recommendations of Ethnic Minorities the project in the context of inclusive development for ethnic minorities at the national and provincial level. National and Qinghai As members of the NPSC and PPSC respectively, the national and provincial level representatives Women’s Federations will oversee project implementation. They will review and consider policy recommendations of the project in the context of woman development at the national and provincial level. MOST and Qinghai As members of the NPSC and PPSC respectively, the national and provincial level representatives Science and will oversee project implementation. They will review and consider policy recommendations of Technology Dept. the project in the context of climate-smart grassland management and herding practices at the national and provincial level. Qilian County Through its AWRSTB, the county government will manage pilot activities under Component 1. It Government will ensure that county level resources and support will be provided to project herders. Its AWRSTB will work with QFGD and MARA to perform all required project management activities and timely disbursement of project PES payments. Page 38 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) Stakeholder Roles and Responsibilities Mole Township Working with county stakeholders, Mole Township Government will directly organize project Government herders to participate in project implementation through its existing village-level working groups. It will support county, provincial and national stakeholders to supervise project implementation at the site level. Pastoral Pastoral communities lie at the heart of the project. Their needs and concerns have been fully Communities considered during project preparation. The selected herders in the treatment group will be supported to understand and carry out project promoted grassland management practices. Results of their activities will be broadly shared with other herders so that all herders will learn from project interventions and eventually improve their own grassland management and herding practices. Relevant National Research institutes participated in project preparation actively. They will continue providing and Provincial technical advice and inputs to ensure proper implementation of project activities. They will also Scientific and ensure effectively coordination between project activities with relevant national and provincial Research Institutions research initiatives. They will help summarize and disseminate project results at the national and international levels. Non-government MARA has consulted the Nature Conservancy on their similar PES programs in Inner Mongolia. In organizations addition to learning experience from those programs, MARA will explore potential cooperation opportunities with this and other NGOs during project implementation. 9. Contributions to the Partnership Program. The table below illustrates how this child project contributes to the Partnership Program. Table 5: Project Contributions to the Partnership Program Partnership Program Project contributions to program level results. Components / outcomes / indicators Components / outcomes / indicators Component 1: Strengthened enabling environment Project Component 2: Policy and Strategy Development Outcome 1.1: Strengthened policy, regulatory and GEF Outcome 2a: Policy options available for decision makers strategic frameworks and cross-sectoral coordination at and stakeholders to consider: (a) the design and national and provincial levels support a) in-situ implementation of future grassland conservation programs; conservation and sustainable use of GRFA, and b) the (b) climate-smart grassland management and herding control of threats posed by IAS to sustainable agricultural practices; and (c) the inclusion of grassland carbon credits in development, and c) evidence-based and climate-smart the National Carbon Trading System. conservation and management of grassland ecosystems Outcome 1.2: Strengthened cross-sectoral coordination GEF Outcome 3c: Effective coordination and implementation of the project to promote the conservation and sustainable results in more effective approaches for the conservation and sustainable use of GRFA and grasslands use of grassland ecosystems. Outcome 1.3: Increased government financing for in-situ GEF Outcome 2a: Policy options available for decision makers conservation and sustainable use of GRFA and grassland and stakeholders to consider in the design and ecosystem, including for the prevention, control and implementation of future grassland conservation programs, management of IAS threats which will highlight the needs of sufficient PES payments for future grassland conservation programs. Component 2: Incentive mechanisms Project Component 1: Grassland Management Pilots Outcome 2.1: Sustainable conservation and management (GEF-7 Core Indicator 4): Area of landscapes under improved approaches established which improve the in-situ practices (ha; excluding protected areas): 80,000 ha sustainable use and conservation of GRFA and deliver GEF Outcome 1a: Demonstrated evidence-based PES scheme social, financial and livelihood benefits to farmers in that link PES payments with herders’ efforts to improve their parallel grassland management and herding practices. GEF Outcome 1b: Demonstrated climate-smart grassland Page 39 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) management and herding practices that can deliver livelihood benefits to project herders: 160 herder households with 10% increases in herding incomes Outcome 2.2: Effective participatory approaches for the No direct contribution. prevention, control and management of IAS impacts on GRFA developed and tested in target agricultural landscapes Outcome 2.3: Community-based grassland management GEF Outcome 1a: Demonstrated evidence-based PES scheme approach (including sound biodiversity and IAS that link PES payments with herders’ efforts to improve their management practices) and evidence-based PES policy grassland management and herding practices. scheme with creditable monitoring, reporting and GEF Outcome 1b: Demonstrated climate smart grassland verification system tested in selected provinces and ready management and herding practices that can deliver livelihood for national scale up benefits to project herders Partnership Program Project contributions to program level results. Components / outcomes / indicators Components / outcomes / indicators Component 3: Institutional capacity strengthening Component 3: Knowledge Management Outcome 3.1: Increased effectiveness of participatory (GEF-7 Core Indicator 11): number of director beneficiaries approaches for the conservation and sustainable use of disaggregated by gender as a co-benefit of GEF investment GRFA and sustainable management of grassland GEF Outcome 1b: Demonstrated climate smart grassland ecosystems management and herding practices that will help herders improve their efforts to effective conservation and sustainable uses of GRFA and grassland ecosystems Outcome 3.2: Strengthened institutional capacity of GEF Outcome 3b: improved technical capacity of officials and relevant public sector agencies within target sites, and of researchers on climate smart grassland management and lead national institutions, for the in-situ conservation and herding practices, as well as the design and implementation of sustainable use of GRFA, for the management of IAS evidence-based PES schemes impacts on agrobiodiversity, and for evidence-based and climate-smart grassland management practices Component 4: Program Coordination, Knowledge Component 3: Knowledge Management Management Outcome 4.1: Improved understanding among decision GEF Outcome 3a: improved herders’ capacity on climate smart makers, the general public and key stakeholder groups on grassland management and herding practices the value of GRFA and importance of in-situ conservation, GEF Outcome 3b: improved technical capacity of officials and and evidence-based policy making for climate-smart researchers on climate smart grassland management and grassland management, and increased access by all herding practices, as well as the design and implementation of groups to information evidence-based PES schemes Outcome 4.2: Monitoring and evaluation demonstrates GEF Outcome 3d: Knowledge Management Platform is actively efficient use of program funds, rationalization of national, used provincial and local level inputs, and sharing of information, resources and expertise between projects, along with ongoing exchange of lessons and best practices Outcome 4.3: Effective coordination of program activities GEF Outcome 3c: effective coordination and implementation across national and provincial stakeholders and GEF of the project and the Partnership Program agencies Page 40 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) ANNEX 3: Economic and Financial Analysis COUNTRY: China Climate Smart Management of Grassland Ecosystems 1. The project’s financial and economic analysis focuses on investment activities under Component 1 that are expected to generate direct financial and economic benefits. As such, subsidies from existing PES programs of the government and those GEF financed consulting activities are excluded from the analysis. This exclusion leaves a total investment costs of US$8.91 million, of which US$1.71 million from the GEF grant and US$7.20 million from the government’s parallel financing. Table 6: Project Investments for Financial and Economic Analyses Investment Activities GEF Grant (US$ M) Parallel Funding (US$ M) Total (US$ M) 1. No-till grass seeding/fertilization 0.21 0.21 2. Spring no-grazing 0.32 0.32 3. enhancement of cultivated grasslands 0.10 0.10 4. Technical assistance and training to herders 1.08 3.64 4.73 5. Repair of existing fences and livestock pens 2.03 2.03 6. Rodent and pest control 1.52 1.52 Total 1.71 7.20 8.91 2. The analyzed economic benefits include increased grassland productivity and increased soil carbon sequestration as results of project promoted grassland management practices. The analyzed financial benefits include increased grassland production and PES payments from the project. The PES payments are currently estimated based on costs to implement the first three investment activities listed in Table 6. 3. The following parameters were used in the financial and economic analyses. (a) Period of analysis: 20 years. (b) Exchange rate: US$ 1 = CNY 6.816. (c) Discount rate: 12%. (d) Carbon price: CNY 36 /ton.18 (e) Hay price: 1500 yuan / ton.19 4. Based on these parameters, it is estimated that the economic internal rate of return (EIRR) of the project is 19.3% with an estimated economic net present value (ENPV) of US$2.86 million. In addition, the estimated financial internal rate of return (FIRR) of the project is 20.0% with an estimated financial net present value (FNPV) 18 This is determined based on consultation with the Beijing Environment Exchange. Feedbacks from the Exchange confirmed that the average market price in China is over CNY 30. Currently, the highest price available for reference is CNY 39 from a transaction of Saihanba (in Zhangjiakou City, Hebei Province). It is recognized that the Bank’s Guidance Note on Shadow Price of Carbon in Economic Analysis (November 12, 2017) has proposed a range of prices between US$40 to US$80 in 2020, US$50 to US$100 in 2030 and US$63 to US$125 in 2040. The use of such prices will enhance further the project’s economic viability. 19 Oat grass, Elymus dahurica, and Elymus sibiricus are three main natural grasses in the region. Hay prices generally fluctuate between 1300-1800 yuan/ton. Page 41 of 42 The World Bank Climate Smart Management of Grassland Ecosystems (P166853) of US$2.95 million. With these, the project is expected to be financially and economically viable. These estimates show that the proposed level of PES payments from the project are reasonable as the project’s FIRR and EIRR are at the same level. 5. Sensitivity Analysis. Considering the major risks associated with the financial sustainability of the investment, the sensitivity of the estimated FIRR and EIRR has been tested against the following scenarios: (a) 10% and 20% decrease in the prices of main outputs (grassland production); (b) 10% and 20% increase in main inputs costs (including expenditures on forage, and rodent and pest control); and (c) 10% and 20% increase in the total investment costs. 6. As shown in the table below, the results of the sensitivity analysis indicate that the analytical model is relatively robust. Decline in output prices has the largest impact on both indicators. The model is relatively less sensitive to increased input and investment costs. Table 7: Sensitivity Analysis: EIRR and FIRR Indicators Baseline Output prices Input costs Investment cost -10% -20% +10% +20% +10% 20% EIRR 19.3% 14.4% 8.5% 16.3% 12.9% 18.1% 16.5% FIRR 20.0% 13.8% 8.0% 15.7% 12.2% 17.5% 15.9% 7. The table below shows the result of using three additional depreciation rates in the model: 10%, 8% and 6% respectively. The calculated ENPV and FNPV show that lower discount rates have positive impacts on the project’s financial and economic performance. Table 8 Sensitivity Analysis: Discount Rates (in US$ million) Indicators Baseline (12%) 10% 8% 6% ENPV 2.86 4.15 5.84 8.04 FNPV 2.95 4.10 5.75 7.89 Page 42 of 42